Interview: ITeego Chief Discusses Fee Structure in Recruiting (Part 1)

December 3, 2009 – Kevin Jenkins is the CEO and top IT recruiter at ITeego, a national web technology recruiting firm based in Austin, Texas. Mr. Jenkins has been recruiting in the web technology space for nearly a decade. In addition to recruiting, he is an entrepreneur and investor in a number of internet start-ups aimed at the human resources and staffing industry. In the following interview, Mr. Jenkins discusses the economy’s impact on fee structures at recruiting firms.

How is business right now? Are you seeing an uptick in hiring or is growth still relatively negative or flat?

We’re definitely seeing an overall increase in hiring activity. That being said, business has been relatively steady for us throughout the recession. I can attribute that to our recruiting niche of web technology being robust. Furthermore, we operate in a number of geographic areas which have remained quite robust. For example, activity in Texas for us has taken off. I think niche and geographic location factors will play a major role in how quickly business picks up for most recruiters.

Some of your colleagues in the business say there has been enormous client-driven pressure to reduce headhunting fees. Are you seeing this?

That’s not my experience at all. Clients that have been properly educated don’t ask recruiters to lower their fees. If a client is trying to push a fee down it’s because the recruiter hasn’t clearly communicated or demonstrated value. The reality is that most recruiters haven't done much in the way of redefining their value proposition to reflect how things have changed in the last three years; namely the impact of technology on sourcing. Recruiters need to ask themselves what their real value is and effectively communicate it. If they do bring value to the table, businesses will pay what its worth.

Is one of the outcomes from this long recession going to be a reduced fee structure for search firms long term? Could this potentially be one of the negative effects of such a long recession that has been marked by such high unemployment?

Reducing fees rarely works to get business anyway and is mostly a contingency recruiter ploy. I don’t believe that any top retained search firms are lowering their fees. Recession or not, nothing has changed in regards to the difficulty of delivering “A” players and the amount of time and effort that is required to successfully recruit them. In fact, it’s even more difficult today. While search firms do have less business these days, they certainly aren’t lowering their fees to try to attract more business. Top firms have enough business to sustain themselves in any economy.

On the flip side, what are some of the more positive things that might be coming out of this recession? Some have said that the downturn in business has actually provided an opportunity for recruiters to improve their businesses — in what way do you think?

In my opinion the recession has been very positive for the recruiting industry. It has driven the mercenary recruiters who tarnish the reputation of the industry out of business. It has really helped to separate the wheat from the chaff. As we come out of the recession we’ll see a leaner but higher quality search services landscape. Of course, that’s good for the recruiting industry and for businesses. Another benefit of the recession has been a lull in search activity which has given forward-thinking search firms a window of opportunity to strategically reposition themselves. It’s hard to find the time to do so when hiring activity is going gangbusters. Search firms that have wisely utilized this down time for such a purpose we will have a tremendous edge going forward in the post recession market.

Where do you see fee structures in five years — when the coast has cleared and the economy is presumably back on a growth trajectory?

I think it is important to differentiate between contingency and retained search when talking about fee structure. I don’t see high-fee contingency search as being a sustainable business model for much longer. I think we will see contingency search fees plunge into the five to 12 percent range. New businesses like Job Board Recruiters are a good example of what we can expect to come in the contingency recruiting space. Fee amounts for retained search will remain in the 25 to 33 percent range. However, there will be changes in how the retained fee structure is paid out. I don’t think you will be able to get away with a pure retainer based fee anymore. Retained search firms will need to make part of their fee contingent on successful hiring. So I see the retained fee structure evolving into a hybrid between classic contingency and retainer. Actually, this is already happening. Finally, I think we’ll see new fee structures that are not retainer or contingency based, but performance based. ITeego’s Performance Payouts is a classic example of this. The fee is paid out incrementally over six months as new employees reach calendar day milestones. At each milestone, their accomplishments are measured against predefined performance expectations. So the recruiter shares the hiring risk with the client by tying recruiting fees to employee performance. Clearly, this is an awesome fee structure for businesses and has been very popular. To summarize, I think we will see contingency recruiting being most popular for positions requiring commoditized skills sets that are widely available in the candidate market and easy to replace. Fee structures like Performance Payouts will be most popular for middle to senior level direct-contributor positions. And classic retained search will continue to be the norm for positions of strategic importance where the role has direct impact on the performance of the organization.

Next Friday, we conclude our interview with Kevin Jenkins.

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